States on a Spending Bender

State governments have no-one to blame but themselves for the condition of their budgets, writes Julie Novak.

The noises you may have heard in the background recently were state government political spin machines whirring away at full speed over the condition of state budgets.

When faced with forecasts six to twelve months ago of a fiscal obliteration leading to years of intractable deficits and debt, state premiers and treasurers were quick to point the collective finger of blame at fictional economic bogies such as casino capitalists playing stock markets or greedy financial sector executives.

According to this view, these malevolent economic agents drowned global financial markets with dodgy financial instruments and bank busts. This in turn weighed down business and consumer confidence, leading to a subdued real economy here in Australia.

Lower revenues filling state treasury coffers were the sure fire result, meaning the big spending party was over.

For example, Queensland treasurer Andrew Fraser recently referred to the Violence' of the global financial crisis that 'wiped out' the state's revenue intake.

This is despite actual general government revenue last financial year being $426 million or 1.2 per cent larger than the original 2008-09 budget estimate.

Fraser's claim of a 'revenueless' recovery is also inconsistent with the forecasts of continuous tax and other revenue growth projected over the forward estimates contained in the June budget. But why let the black and white budget facts stand in the way of a political opportunity to scare people into accepting massive state deficits combined with a truckload of public debt?

Indeed, comparing the 2008-09 final budget results for each state against the original budget forecast for that year reveals a dramatic deterioration in performance for all and sundry.

So, if the states' financial situations are not primarily the result of falling revenue but are nonetheless in a parlous state then what is driving the outcome?

A comparison of final budget results for the last financial year, with original estimates for available states, shows that upward revisions in general government expenditure exceeded growth in revenue by a considerable margin. …

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